IMF Reports Rocky Recovery for the Global Economy

The International Monetary Fund (IMF) published its World Economic Outlook for 2023. The report highlights IMF’s weakest medium-term forecast since 1990. 

IMF forecasts a global economic growth fall from 3.4% in 2022 to 2.8% in 2023, before settling at 3.0% in 2024. This fall is expected to be more pronounced for advanced economies, which are expected to take a dip from 2.7% in 2022 to 1.3% in 2023. IMF reports that Asian economies will be the main drivers for growth, especially India and China.

While China is bouncing back after reopening its economy, supply chain disruptions are de-stressing. Likewise, disturbances around the energy and food markets caused by the war are receding.

The document recognizes an alternative scenario plagued by further financial stress, where global growth could fall to 2.5% in 2023. However, IMF recognizes that while plausible, the economy faces challenges with stable foundations. 

IMF reports that inflation is set to fall from 8.7% in 2022 to 7% in 2023 due to lower commodity prices, although underlying inflation is likely to cool down slower. However, the fund says it is unlikely that inflation will return to its baseline before 2025. Still, the monetary policy deployed by most central banks should start to yield results, moving inflation to its targets.

IMF notes that emerging markets and developing economies are forging ahead, in many cases showing growth rates (fourth quarter over fourth quarter) jumping from 2.8% in 2022 to 4.5% this year. Growth slowdown is mainly concentrated in advanced economies, particularly the Euro area, the US and UK. In those regions, growth (also fourth quarter over fourth quarter) is expected to fall to 0.7% and –0.4%, respectively, this year before rebounding to 1.8% and 2.0% percent in 2024.

Core inflation “has not yet peaked in many countries,” advises IMF. “We are therefore entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen. Yet, inflation has not decisively turned the corner. More than ever, policymakers will need a steady hand and clear communication.”

IMF points out a global slowdown in the medium-term. Its growth forecasts present a steady decline from 4.6% in 2011 to 3% in 2023. IMF says this reflects the slowdown of rapidly growing economies, such as China and Korea, among other factors. “Some of the more recent slowdowns may also reflect more ominous forces: the scarring impact of the pandemic; a slower pace of structural reforms, as well as the rising threat of geoeconomic fragmentation leading to more trade tensions; less direct investment and a slower pace of innovation and technology adoption across fragmented ‘blocs.’”

Quartz reports that although forecasts were reasonably accurate from 1980 to 2021, they were less reliable before and during recessions. IMF projections tend to be more precise than those of the World Bank. However, IMF's predictions were off by over a percentage point during the early 1990s recession and before and during the Great Recession of 2008 to 2009. Notably, GDP forecasts for 2019, made before and during the pandemic, were accurate but slightly higher. The projected figures for the years preceding 2019 exceeded the actual numbers by as much as 0.5 percentage points.